Keystone snub adds to gloomy prospects for pipeline companies

HOUSTON Nov 6 (Reuters) - North American pipeline companies
are at a crossroads. Once the darlings of investors, their
growth prospects have been undercut by a 50 percent slide in oil
prices and tough environmental reviews that have delayed
projects.

President Obama's rejection on Friday of TransCanada Corp's
proposed Keystone XL oil pipeline, while expected by
many, highlighted difficulties that have been nagging the sector
for months.

"It's not good news for the midstream sector," said Skip
York, an oil analyst at Wood Mackenzie.

Pipeline companies have been especially popular with
investors in recent years for their ability to consistently pay
out and grow large dividends.

But their attractiveness has faded since at least this
summer as executives at some of the biggest pipeline companies,
including Plains All American LP and Kinder Morgan Inc
, have warned of slower or variable dividend growth.

The main reason is that oil producers are cutting back
investments, so there may be less additional new volumes of
crude for the pipeline companies to carry and charge fees on in
the future. This is already hurting demand to build new
pipelines.

"In an environment where commodity prices are low ... it's
more challenging and more expensive to raise capital. That all
makes it harder to grow," said Jeff Birnbaum of Wunderlich
Securities in New York.

While revenues from existing pipeline flows are seen as
safe, the cloudy outlook for new revenue has prompted investors
to dump shares of midstream companies.

The Alerian MLP index, the benchmark for the sector,
has fallen 32 percent over the last year.
Continued...